OfficeMax 2006 Annual Report Download - page 88

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compensation expense tobe recognized related to thisgrant,net of estimated forfeitures, is
approximately $25 million.
In 2005, the Company grantedto employees and nonemployee directors 728,123 RSUs. The
weighted-average grant-date fair value of the RSUs was $33.15. As of December 30, 2006, 558,449 of
these RSUs remained outstanding, which vest after defined service periods as follows: 30,910 units in
2006,475,639 units in2007, 45,900units in 2008and 3,000 units in both 2009 and 2010. The
remaining compensation expense to be recognized related to this grant, net ofestimated forfeitures, is
approximately $2million.
In 2004, the Company granted366,775 RSUs to employees and 14,765 shares of restricted stock
to nonemployee directors. Theweighted-average grant-date fair value of the RSUs and restricted
stock shares was $32.14. The vesting ofthe 2004 RSU award to employees was based on
performance criteria established for 2004 and 2005. The performance criteria were not met; therefore,
no compensation expense was recorded for this RSU award, and these units were forfeited and will
not be distributed.The restricted stock granted to directors vests six months after their terminationor
retirement from board service, and 7,170 of these restricted stock shares remainrestricted and
outstanding at December 30, 2006.
Restricted stock shares are restricted until theyvest and cannot be sold by therecipientuntil the
restriction has lapsed. RSUs are restricted until they vest and are convertible into one common share
after the restriction has lapsed. No entries are made in the financial statements on the grant date of
restricted stock and RSU awards. The Company recognizes compensation expense related to these
awards over thevesting periods based on the closing prices of the Company’scommon stock on the
grant dates. If these awards contain performance criteria, management periodically reviews actual
performance against the criteria and adjusts compensation expense accordingly. In 2006, 2005 and
2004,the Company recognized $24.1 million, $9.2 millionand $25.1 million, respectively, ofpre-tax
compensation expense and additional paid-in capital related to restricted stock and RSU awards.
Restricted shares and RSUs are not included as shares outstanding in the calculationof basic
earnings per share, but are included inthe number of shares used to calculate diluted earnings per
share as long as all applicable performance criteria are met, and their effect is dilutive. When the
restrictionlapses on restricted stock, the par valueof the stock is reclassified from additional
paid-in-capital to common stock.When therestrictionlapses onRSUs, the units are converted to
unrestricted common shares and the par value of the stock is reclassified fromadditional
paid-in-capital to common stock. Unrestricted sharesare included in shares outstandingfor purposes
of calculating both basic and diluted earnings per share. Depending on the terms of the applicable
grant agreement, restricted stock and RSUs may be eligible to receive all dividends declared on the
Company’s common shares during the vesting period; however, such dividendsare not paid until the
restrictions lapse.
Stock Units
TheCompany has a shareholder approved deferred compensation program for certain ofits
executive officers thatallowsthem to defer a portion of theircashcompensation. Previously, these
officers could allocatetheir deferrals to a stock unit account. Each stock unit is equal in value to one
share of the Company’s common stock. The Company matched deferrals used to purchase stock
unitswith a25% Company allocation of stock units.The value of deferred stock unit accounts is paid
in shares of the Company’s common stockwhen an officer retires or terminates employment. At
December 30, 2006, 13,464 stock units were allocated to the accounts of these executive officers. As
a result of anamendment to the plan, no additional deferrals can be allocated to the stock unit
accounts.